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EX-31.1 - EXHIBIT 31.1 - MCX Technologies Corpex31-1.htm


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2016

 

 

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number:   000-54918

 

MCORPCX, INC.

(Exact name of registrant as specified in its charter)

 

California

(State or other jurisdiction of incorporation or organization)

 

26-0030631

(I.R.S. Employer Identification No.)

 

201 Spear Street, Suite 1100

San Francisco, CA   94105

(Address of principal executive offices, including zip code)

 

(415) 526-2655

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.  

YES      NO

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YES      NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer," "non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

(Do not check if a smaller reporting company)

Smaller Reporting Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   YES      NO

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicated the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

20,426,158 as of August 12, 2016. 

 



 

 
 

 

  

MCORPCX, Inc.

Form 10-Q Quarterly Report

 

TABLE OF CONTENTS

 

 

 

Page

No.

 

 

 

 

Part I. - Financial Information

 

 

 

 

Item 1.

Condensed Financial Statements.

3

 

 

 

 

Condensed Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015.

3

 

 

 

 

Condensed Statements of Operations for the Three and Six Months ended June 30, 2016 and 2015 (unaudited).

4

 

 

 

 

Condensed Statements of Cash Flows for the Six Months ended June 30, 2016 and 2015 (unaudited).

5

 

 

 

 

Notes to Condensed Financial Statements (unaudited).

6

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

12

 

 

 

Item 3.

Quantitative and Qualitative Disclosure about Market Risk.

17

 

 

 

Item 4.

Controls and Procedures.

17

 

 

 

 

 

 

 

Part II. - Other Information

18

 

 

 

Item 1. 

Legal Proceedings.

18

 

   

Item 1A.

Risk Factors.

18

 

   

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds.

18

 

   

Item 3. 

Defaults Upon Senior Securities.

18

     

Item 4. 

Mine Safety Disclosures.

18

     

Item 5. 

Other Information.

18

 

 

 

Item 6.

Exhibits.

18

 

 

 

Signatures

19

 

 

Exhibit Index

20

    

 
-2-

 

  

PART I. FINANCIAL INFORMATION

 

ITEM 1.     FINANCIAL STATEMENTS.

 

McorpCX, Inc.

Condensed Balance Sheets

 

   

June 30,

   

December 31,

 
   

2016

   

2015

 
   

(unaudited)

         

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 2,538,902     $ 492,733  

Accounts receivable

    113,404       114,805  
Total current assets     2,652,306       607,538  

Long term assets:

               

Property and equipment, net

    96,532       89,725  

Capitalized software development costs, net

    191,626       61,224  

Intangible assets, net

    95,279       83,072  

Other assets

    64,065       23,541  
Total assets   $ 3,099,808     $ 865,100  
                 

Liabilities and Shareholders' Equity

               

Liabilities:

               

Accounts payable

  $ 249,734     $ 133,046  

Deferred revenue

    104,653       118,034  

Other current liabilities

    5,105       6,718  
Total current liabilities     359,492       257,798  

Notes payable, net of current portion

    50,000       50,000  

Related party notes, net of current portion

    77,150       70,829  
Total liabilities     486,642       378,627  
                 

Shareholders' equity:

               

Common stock, $0 par value, 30,000,000 shares authorized, 20,426,158 and 16,766,158 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively

    -       -  

Additional paid-in capital

    6,154,034       3,339,503  

Accumulated deficit

    (3,540,868 )     (2,853,030 )
Total shareholders' equity     2,613,166       486,473  

Total liabilities and shareholders' equity

  $ 3,099,808     $ 865,100  

   

The accompanying notes are an integral part of these unaudited statements.

 

 
-3-

 

  

McorpCX, Inc.

Condensed Statement of Operations

(unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2016

   

2015

   

2016

   

2015

 
                                 

Revenue

                               

Consulting services

  $ 450,208     $ 275,069     $ 636,742     $ 640,238  

Products & other

    40,743       57,551       90,162       123,253  

Total revenue

    490,951       332,620       726,904       763,491  

Cost of goods sold

                               

Labor

    49,905       93,242       81,423       181,506  

Products and other

    67,812       46,840       129,439       132,489  

Total cost of goods sold

    117,717       140,082       210,862       313,995  

Gross profit

    373,234       192,538       516,042       449,496  

Expenses

                               

Salaries and wages

    248,398       209,220       491,900       462,426  

Contract services

    23,395       83,311       68,800       128,947  

Other general and administrative

    294,794       179,849       626,883       271,164  

Total expenses

    566,587       472,380       1,187,583       862,537  
                                 

Net operating loss

    (193,353 )     (279,842 )     (671,541 )     (413,041 )
                                 

Interest expense

    (4,131 )     (4,746 )     (7,850 )     (7,195 )
                                 

Other income (expense)

    (1,597 )     (850 )     (8,447 )     5,231  
                                 

Loss before income taxes

    (199,081 )     (285,438 )     (687,838 )     (415,005 )
                                 

Income tax provision

    -       -       -       -  
                                 

Net loss

  $ (199,081 )   $ (285,438 )   $ (687,838 )   $ (415,005 )
                                 

Net loss per share-basic and diluted

  $ (0.01 )   $ (0.02 )   $ (0.03 )   $ (0.03 )
                                 

Weighted average common shares outstanding-basic and diluted

    20,426,158       16,626,667       19,782,642       16,492,158  

  

The accompanying notes are an integral part of these unaudited statements.

 

 
-4-

 

  

McorpCX, Inc.

Condensed Statement of Cash Flows

(unaudited)

 

   

Six Months Ended June 30,

 
   

2016

   

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (687,838 )   $ (415,005 )

Adjustments to reconcile net loss to net cash used in operations:

               

Depreciation and amortization

    57,889       47,754  

Stock compensation expense

    69,531       30,557  

Loss on disposal of assets

    -       1,484  

Unrealized (gain) loss on foreign currency translation

    6,321       (6,142 )

Realized gain on foreign currency translation

    -       911  

Changes in operating assets and liabilities:

               

Accounts receivable

    1,401       (40,595 )

Other assets

    (40,524 )     14,849  

Accounts payable

    116,688       83,687  

Other current liabilities

    (19,133 )     (273 )

Deferred revenue

    (13,381 )     (23,591 )

Accrued interest

    17,520       2,610  

Net cash used in operating activities

    (491,526 )     (303,754 )
                 

INVESTING ACTIVITIES

               

Equipment purchases

    (8,856 )     (2,597 )

Payments for acquisition of intangible assets

    (30,000 )     -  

Capitalized web development costs

    -       (39,088 )

Capitalized software development costs

    (168,449 )     -  

Net cash used in investing activities

    (207,305 )     (41,685 )
                 

FINANCING ACTIVITIES

               

Proceeds from private placement of common stock

    2,745,000       513,750  

Net cash provided by financing activities

    2,745,000       513,750  
                 

Increase in cash and cash equivalents

    2,046,169       168,311  
                 

Cash and cash equivalents, beginning of period

    492,733       649,063  

Cash and cash equivalents, end of period

  $ 2,538,902     $ 817,374  
                 

Supplemental disclosure of cash flow information:

               

Interest paid

    5,330       4,585  

  

The accompanying notes are an integral part of these unaudited statements.

 

 
-5-

 

 

MCORPCX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2016

(unaudited)

  

Note 1: Organization and Basis of Presentation

 

McorpCX, Inc. (the "Company", “we”, “us”) is a for profit corporation established under the corporation laws in the State of California, United States of America on December 14, 2001. We operated as The Innes Group, Inc., dba MCorp Consulting until filing a Certificate of Amendment to the Articles of Incorporation renaming the Company Touchpoint Metrics, Inc., effective October 18, 2011. During Q1 2015, the we filed a d/b/a (doing business as) with the State of California Secretary of State to begin doing business as McorpCX. On June 11, 2015, at our Annual General Meeting, shareholders passed a resolution to change the name of the Company to McorpCX, Inc.

 

We develop and delivers technology-enabled products and services that improve customer experience management capabilities for corporations. Our products assist companies with improving business performance by measuring and transforming the ways they interact with customers. We serve a wide variety of industries and customer sizes.

 

The condensed financial statements and related disclosures as of June 30, 2016 and for the three and six months ended June 30, 2016, are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). The condensed balance sheet as of December 31, 2015 was derived from the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. In our opinion, these condensed financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These condensed financial statements should be read in conjunction with the financial statements included in our Annual Report for the year ended December 31, 2015, filed on Form 10-K with the SEC on March 30, 2016.  The results of operations for the three and six months ended June 30, 2016, are not necessarily indicative of the results to be expected for the full year. Unless the context otherwise requires, all references to "McorpCX," "we," "us," "our" or the "Company" are to McorpCX, Inc. and our subsidiaries.

  

Note 2: Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases: (Topic 842), to provide guidance on recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements, specifically differentiating between different types of leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from all leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. We are currently evaluating the impact of these amendments on its financial statements.

 

 
-6-

 

  

MCORPCX, INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2016

(unaudited)

  

In March 2016, the FASB issued ASU No. 2016-9, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to reduce complexity in accounting standards involving several aspects of the accounting for employee share-based payment transactions, including (1) the income tax consequences, (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. The amendments will be effective for financial statements issued for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and early adoption is permitted. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition, amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively, amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively, and amendments related to the presentation of excess tax benefits on the statement of cash flows can be applied using either a prospective transition method or a retrospective transition method. An entity that elects early adoption must adopt all of the amendments in the same period. We are currently evaluating the impact of these amendments on our financial statements.

 

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09. We are currently evaluating the impact of these amendments on our financial statements.

 

In April 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to clarify the following two aspects of Topic 606: 1) identifying performance obligations, and 2) the licensing implementation guidance. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09. We are currently evaluating the impact of these amendments on our financial statements.

 

In May 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, to clarify certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09. We are currently evaluating the impact of these amendments on our financial statements.

 

 
-7-

 

  

MCORPCX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2016

(unaudited)

 

Note 3: Capitalized Software Development Costs

 

Costs incurred to develop Software as a Service (SaaS) technology consist of external direct costs of materials and services and payroll and payroll-related costs for employees who directly devote time to the project. Research and development costs incurred during the preliminary project stage are expensed as incurred. Capitalization begins when technological feasibility is established. Costs incurred during the operating stage of the software application relating to upgrades and enhancements are capitalized to the extent that they result in the extended life of the product. All other costs are expensed as incurred. During the six months ended June 30, 2016 expenses relating to upgrades and enhancements of $168,449 were capitalized.

 

Amortization of software development costs commenced when the product was available for general release to customers. The capitalized costs are amortized on a straight line basis over the three year expected useful life of the software. Capitalized software development costs, net of amortization, were $191,626 and $61,224 as of June 30, 2016 and December 31, 2015, respectively. Amortization expense incurred during the six months ended June 30, 2016 and 2015 was $38,047 and $36,551, respectively and is included in cost of goods sold.

 

Note 4: Intangible Assets

 

Intangibles as of June 30, 2016 consisted of the following:

 

   

June 30, 2016

 
           

Accumulated

         
   

Gross

   

Amortization

   

Net Book Value

 

PetroPortfolio

  $ 131,151     $ (89,538 )   $ 41,613  

Website development costs

    67,113       (42,197 )   $ 24,916  

Media distribution rights

    25,000       (1,042 )   $ 23,958  

Intellectual property

    5,000       (208 )   $ 4,792  

LinkedIn Group

    2,500       (2,500 )   $ -  

Organization costs

    1,377       (1,377 )   $ -  

Total intangibles

  $ 232,141     $ (136,862 )   $ 95,279  

 

We began development of a new Company website in September 2014; related costs incurred during the design and production stages of website development were capitalized prior to its go-live date, which occurred in March 2015.  Now that the website is live, all capitalized costs are amortized using straight-line basis over two years, the estimated economic life of the completed website.

 

Acquisition of media distribution rights occurred in May 2016 and all capitalized costs are amortized using straight-line basis over two years, the estimated economic life of this asset.

 

Acquisition of intellectual property occurred in June 2016 and capitalized costs are amortized using straight-line basis over two years, the estimated economic life of this asset.

 

Our intangible assets are reviewed for impairment when facts or circumstances suggest that the carrying value of the asset may not be recoverable.  There were no impairment charges during the six months ending June 30, 2016 and 2015.

 

Total amortization of intangible assets was $17,793 and $9,945 for the six months ended June 30, 2016 and 2015, respectively.

 

 
-8-

 

  

MCORPCX, INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2016

(unaudited)

  

Note 5: Stock-Based Compensation

 

Our stock-based compensation plan was originally established in 2008. The shares of our common stock issuable pursuant to the terms of such plan (the “Plan Shares”) could not exceed 30% of any outstanding issue or 2,500,000 shares, whichever was the lower amount.

 

In December 2015, we adopted a revised share option plan in which Plan Shares cannot exceed 10% of the total issued and outstanding shares at any given time. All stock option grants have an exercise price equal to the fair market value of our common stock on the date of the grant and all option grants have a 10-year term.

 

In order to calculate the fair value of stock options at the date of grant, we use the Black-Scholes option pricing model. The volatility used is based on a blended historical volatility of our own stock and similar sized companies due to the limited historical data available for our own stock price.  The expected term was determined based on the simplified method outlined in Staff Accounting Bulletin No. 110.  The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

 

At June 30, 2016, 906,000 stock options were exercisable and $69,531 of total compensation cost related to vested share-based compensation grants had been recognized for six months ended June 30, 2016. Unrecognized compensation expense from stock options was $260,660 at June 30, 2016, which is expected to be recognized over a weighted-average vesting period of 1.80 years beginning July 1, 2016.

 

The following table summarizes our stock option activity for the six months ended June 30, 2016:

 

                   

Weighted

         
           

Weighted

   

Average

         
           

Average

   

Remaining

   

Aggregate

 
   

Number of

   

Exercise

   

Contractual

   

Intrinsic

 
   

Shares

   

Price

   

Term (in years)

   

Value

 

Outstanding at December 31, 2015

    1,730,000     $ 0.70       8.37       1,810,200  

Granted

    70,000     $ 1.95       -       -  

Exercised

    -     $ -       -       -  

Forfeited or expired

    (20,000 )   $ 2.20       -       -  

Outstanding at June 30, 2016

    1,780,000     $ 0.74       8.02       592,800  

Exercisable at June 30, 2016

    906,000     $ 0.56       7.07     $ 592,800  
                                 

Vested or expected to vest

    1,644,540     $ 0.73                  

 

The following assumptions were used to calculate weighted average fair values of the options granted in the six months ended June 30, 2016 and 2015:

 

   

Six Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2016

   

2015

 

Expected life (in years)

    5.84       5.75  

Risk-free interest rate

    1.45 %     1.67 %

Volatility

    111.43 %     51.94 %

Dividend yield

    -       -  

Weighted average grant date fair value per option granted

  $ 1.81     $ 0.21  

  

 
-9-

 

   

MCORPCX, INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2016

(unaudited)

  

Note 6: Concentrations

 

We sell products and services under various terms to a broad range of companies across multiple industries ranging from start-ups to Fortune 500 companies, with sales historically concentrated among a few large clients. In 2016 we have made efforts to mitigate risk from loss of a single client and have shifted sales concentration to a more even distribution among our clients. For the six months ended June 30, 2016 and 2015, the percentage of sales and the concentrations are:

 

   

Six Months Ended

 
   

June 30,

 
   

2016

   

2015

 

Largest client

    21.56 %     48.03 %

Second largest client

    21.55 %     14.34 %

Third largest client

    17.27 %     14.26 %

Next three largest clients

    21.76 %     20.04 %

All other clients

    17.86 %     3.33 %
      100.00 %     100.00 %

 

Sales are made without collateral and the credit-related losses have been insignificant or non-existent. Accordingly, there is no provision made to include an allowance for doubtful accounts.

  

Note 7: Debt

 

On September 16, 2011, a $100,000 CAD note was executed with an individual, a 1.64% shareholder. The note is structured to incur a balloon payment of the principal and 4% APR non-compounding accrued interest on its amended maturity date of September 16, 2016.  All accrued interest to date was paid in September 2014. We have recorded unrealized loss of $6,321 and a gain of $6,142 during the six months ended June 30, 2016 and 2015, respectively, related to the revaluation of this note's principal from CAD to USD.  As of June 30, 2016, principal and accrued interest was $77,150 and $5,654, respectively.

 

On September 7, 2011, a $50,000 USD note was executed with McLellan Investment Corporation, a related party. The note is structured to incur a balloon payment of the principal and 4% APR non-compounding accrued interest on its amended maturity date of September 7, 2016. All accrued interest to date was paid in September 2014. As of June 30, 2016, principal and accrued interest was $50,000 and $3,583, respectively.

 

Interest expense was $7,850 and $7,195 for the six months ended June 30, 2016 and 2015, respectively and consists of interest on our short-term promissory notes, and credit card balances.

    

 
-10-

 

  

MCORPCX, INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2016

(unaudited)

  

Note 8: Shareholders Equity

 

On February 2, 2016 we completed a private placement of 3,660,000 restricted shares of common stock in consideration for $2,745,000 or at a rate of $0.75 per share. The private placement was completed in connection with and as a condition of our listing on the TSX Venture Exchange. The proceeds will be used for sales and marketing, product development and for general working capital purposes.

 

The Company is authorized to issue 30,000,000 shares of common stock, no par value per share.

  

Note 9: Going Concern

 

The accompanying financial statements and notes have been prepared assuming that the Company will continue as a going concern.

 

For the six months ended June 30, 2016 we had a net loss of $687,838.  We also had a net loss of $415,005 for the six months ended June 30, 2015. These circumstances result in substantial doubt as to our ability to continue as a going concern which is dependent upon our ability to continue to generate sufficient revenues to operate profitably, or raise additional capital through debt financing and/or through sales of common stock.

 

The failure to achieve the necessary levels of profitability or obtain the additional funding would be detrimental.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

 
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ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Cautionary Statement

 

This Management's Discussion and Analysis includes a number of “forward-looking statements”, that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: "believe," "expect," "plan", "estimate," "anticipate," "intend," "project," "will," "predicts," "seeks," "may," "would," "could," "potential," "continue," "ongoing," "should" and similar expressions, or words which, by their nature, refer to future events. Although we believe that our expectations as reflected in forward-looking statements are reasonable, we cannot assure readers that those expectations will prove to be correct. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Form 10-Q. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or from our predictions. Other than as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

 

Unless the context otherwise requires, all references to "McorpCX," "we," "us," "our" or the "Company" are to McorpCX, Inc. and our subsidiaries.

 

Overview

 

We are a customer experience (CX) management solutions company that develops and delivers technology products such as Touchpoint Mapping®, an on-demand "cloud based" suite of customer experience management software, and that also provides professional and related services designed to help organizations improve customer experiences, increase customer loyalty, reduce costs and increase revenue.

 

We believe that delivering better customer experiences is a powerful, sustainable way for any organization to differentiate from their competition. We are engaged in the business of developing and delivering technology-enabled products and professional services that help large, medium and small organizations improve their customer listening and customer experience management capabilities.

 

Our current product, Touchpoint Mapping® On-Demand, is a research-based software solution designed to be a comprehensive customer experience solution for customer-centric organizations to measure and gather customer data across all their touchpoints, channels and interactions with their customers. Touchpoint Mapping® On-Demand is designed to enable an organization to see where and how to improve brand and customer loyalty, as well as their customers' experiences across multiple channels and touchpoints.

 

Our professional services are intended to help primarily large and medium sized organizations plan, design and deliver better customer experiences, and to analyze and review client data gathered through our software application. Other services include customer experience training, strategy consulting and business process optimization, which are intended to increase our customers' adoption of our products and services, help our customers maximize their return on investment, and improve our customers' efficiency.

 

Development of our software is ongoing, as Touchpoint Mapping® On-Demand is refined and improved based on customer feedback, and customized for specific organizations and industry sectors. The services delivered with Touchpoint Mapping® On-Demand may include consulting and additional research services, as well as services such as assessment, integration, implementation and additional offline analysis and reporting of data.

 

Though we released Touchpoint Mapping® On-Demand in 2013, we cannot predict the timing or probability of generating material sales revenue from it.  As of this filing, we have yet to engage the necessary sales and marketing staff or the capabilities required to identify, develop, and close material product sales opportunities, and currently lack sufficient resources to market and sell our products in the manner which we believe is required to achieve our product sales and revenue growth objectives.

 

 
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Sources of Revenue

 

Our revenue consisted primarily of professional and software-enabled consulting services, product sales and other revenues in 2016 and 2015. Consulting services include customer experience management consulting in the areas of strategy development, planning, education, training and program design, and includes the articulation of customer-centric strategies and implementation roadmaps in support of these strategies. Product revenue is from productized and software-enabled service sales not elsewhere classified, while other revenue includes reimbursement of related travel costs and out-of-pocket expenses.

 

While our plan of operations is based on migrating the majority of our service revenue from these categories to recurring Software as Service (“SaaS”) subscription fees, we anticipate that fees for professional and software-enabled consulting services will remain a significant revenue source in the foreseeable future. As of June 30, 2016, we have successfully delivered certain features and functionality of our software product, Touchpoint Mapping® On-Demand, to several clients. However, we have not obtained material stand-alone sales commitments for Touchpoint Mapping® On-Demand, and do not anticipate being able to do so until we engage the necessary sales and marketing staff to develop and execute product sales opportunities.

 

Should we successfully obtain material sales commitments for Touchpoint Mapping® On-Demand, we anticipate that subscription agreements and related professional services associated with delivering our software solutions will become a source of increased revenue. Subscriptions and associated professional services pricing are based on our gross margin objectives, growth strategies and the specific needs of our clients' organizations, measured primarily by the following metrics: breadth of insights sought, number of employees, number of customers and customer segments, frequency of insights gathered, and other variables.

 

Subscription agreements for our software solutions are offered as monthly term agreements which contain a minimum commitment period of at least 12 months, and which include related setup, upgrades, hosting and support. Professional services include consulting fees related to implementation, customization, configuration, training and other services.

 

Based on data gathered during the implementation stage of on-demand software and software-enabled services engagements, we believe that the average time it will take our clients from placing an order to live deployment of our products is between 30 and 45 days. We typically invoice clients upon inception of subscription agreements for setup and total subscription fees contracted over the term of the agreements, with payment due within 30 days.

 

Professional services related to the subscription agreements are invoiced at the inception of the professional services agreement at one-third or fifty percent of total fees, with the balance of payments due over the duration of the contract as project milestones are met. Amounts invoiced are recorded in accounts receivable and deferred revenue or revenue, depending on whether revenue recognition criteria have been met.

 

Cost of Revenue and Operating Expenses

 

Our costs of revenue and operating expenses are detailed at the sub-category level in our Income Statements. And while the financial results for these categories are further explained in the Results of Operations section below, a general description of these categories follows:

 

Cost of Goods Sold

 

Cost of goods sold has historically consisted primarily of expenses directly related to providing professional and consulting services. Those expenses include contract labor, third-party services, and materials and travel expenses related to providing professional services to our clients.  However, as certain features of Touchpoint Mapping® On-Demand were made available for general release beginning in 2014, costs of goods now also includes significant product-related hosting and monitoring costs, licenses for products embedded in the application, amortization of capitalized software development costs, related sales commissions, service support, account management and subscriptions, as applicable.

 

 
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Should our client base grow, we intend to continue to invest additional resources in our hosting, technical support and professional services capabilities, as well as our utilization of third-party licensed software.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of salary and related expenses for management, client delivery, finance and accounting, and marketing personnel. Expenses also include contract services, as well as marketing and promotion costs, professional fees, software license fee expenses, administrative costs, insurance, rent and a portion of travel expenses and other overhead, which are categorized as “other general and administrative expenses” in our financial statements.

 

Sales and marketing expenses are currently reflected in salaries and wages, commissions, contract labor, sales, marketing and promotion, and other related overhead expense categories. Since we currently recognize revenue over the terms of the subscriptions or professional services engagements, we expect to experience a delay between increases in selling and marketing expenses and the recognition of revenue. We expect to continue to incur significant sales and marketing expenses in both absolute dollars and as a percentage of expenses as we hire sales and additional marketing personnel and increase the level of marketing activities.

 

We expect that total general and administrative expenses will increase as we continue to add personnel in connection with the growth of our business. In addition to increases in sales and marketing and research and development expenses, in order to meet the requirements of a public company we anticipate we will also incur additional employee salaries and related expenses, professional service fees and insurance costs in connection with any growth of our business and operations.

 

Results of Operations

 

                   

Change from

   

Percent Change

 

Revenue

 

2016

   

2015

   

Prior Year

   

from Prior Year

 

Three Months Ended June 30,

  $ 490,951     $ 332,620     $ 158,331       48 %

Six Months Ended June 30,

  $ 726,904     $ 763,491     $ (36,587 )     (5 %)

 

Revenues were lower for the six months ended June 30, 2016 when compared to the same period in 2015, primarily due to decreased revenues from consulting services in the first half of 2016 compared to the first half of 2015 mainly due to a decrease in revenues from our consulting services during the three months ended March 31, 2016, not being fully offset by increased revenues from our consulting services in the second quarter of 2016. Revenues also decreased from our software products and software related services in the first half of 2016 compared to the same period in 2015. During the first quarter of 2016, we decided to focus on internal initiatives that we believed were critical to our long-term growth. These initiates included the listing of our shares of common stock on the TSX Venture Exchange and the closing of the related private placement of our common stock in February 2016.

 

Total revenues in the second quarter of 2016 were 48% higher than total revenues in the second quarter of 2015, mainly due to increased revenue from consulting services in the second quarter of 2016 that was primarily the result of management’s re-focus on business development and revenue generating efforts in that quarter.

 

                   

Change from

   

Percent Change

 

Cost of Goods Sold

 

2016

   

2015

   

Prior Year

   

from Prior Year

 

Three Months Ended June 30,

  $ 117,717     $ 140,082     $ (22,365 )     (16 %)

Six Months Ended June 30,

  $ 210,862     $ 313,995     $ (103,133 )     (33 %)

 

 
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Cost of goods sold decreased by $22,364 for the three months ended June 30, 2016 when compared to the same period in 2015 due primarily to a decrease of approximately $29,000 in professional fee costs. This decrease was largely driven by the hiring of additional salaried employees leading to a lesser need for contracted resources.

 

Cost of goods sold decreased by $103,133 during the six months ended June 30, 2016 when compared to the same period in 2015 primarily as a result of a decrease of approximately $84,000 in professional fee costs. A decrease of $37,000 in reimbursable expenses such as lodging, meals and entertainment and transportation in the same period also contributed to the decrease in cost of goods sold.

 

                   

Change from

   

Percent Change

 

Salaries and Wages

 

2016

   

2015

   

Prior Year

   

from Prior Year

 

Three Months Ended June 30,

  $ 248,398     $ 209,220     $ 39,178       18.73 %

Six Months Ended June 30,

  $ 491,900     $ 462,426     $ 29,474       6.37 %

 

Salaries and wages increased by $39,178 for the three months ended June 30, 2016 when compared to the three months ended June 30, 2015 driven largely by an increase in staff salaries of $53,000 combined with an increased stock based compensation expense of $29,000, being partially offset by a reduction in officer salaries and related benefits of approximately $43,000 mainly due to the capitalization of officer salaries for software development efforts during the second quarter of 2016. We hired additional staff in 2016 to assist with the delivery of our professional services and other tasks, which primarily contributed to the increased staff salaries and stock compensation expenses in the second quarter of 2016.

 

For the six months ended June 30, 2016, salaries increased when compared to the six months ended June 30, 2015, primarily as a result of the hiring of new employees and increased stock based compensation expense of $39,000 mostly due to the issuance of option grants to these employees. This increase was partially offset by a decrease in commissions.

 

                   

Change from

   

Percent Change

 

Contract Services

 

2016

   

2015

   

Prior Year

   

from Prior Year

 

Three Months Ended June 30,

  $ 23,395     $ 83,311     $ (59,916 )     (71.92 %)

Six Months Ended June 30,

  $ 68,800     $ 128,947     $ (60,147 )     (46.64 %)

 

Contract services expenses decreased by $60,147 for the three and six months ended June 30, 2016 primarily due to decreases in corporate and investor relations, business development and sales, accounting, marketing, and product development expenses, being partially offset by an increase in acquisition assistance of $9,000 for the six months ended June 30, 2016. There was no change in acquisition assistance for the three months ended June 30, 2015.

  

                   

Change from

   

Percent Change

 

Other General and Administrative

 

2016

   

2015

   

Prior Year

   

from Prior Year

 

Three Months Ended June 30,

  $ 294,794     $ 179,849     $ 114,945       63.91 %

Six Months Ended June 30,

  $ 626,883     $ 271,164     $ 355,719       131.18 %

 

Other general and administrative costs increased for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 primarily due to an increase in professional fees of $53,000 mainly as a result of increased legal costs. Other increases include $38,000 in sales, marketing, and promotion, $20,000 in travel, meals, and entertainment and $13,000 across all of the following categories: computers and software, dues and subscriptions, insurance, rent, and repairs and maintenance. These increases were partially offset by a decrease in administration costs of $9,000.

 

 
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Other general and administrative costs increased for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 primarily due to an increase of $187,000 in professional fees associated with our listing on the TSX-V exchange, the closing of our private placement in February 2016, and the engagement of a new audit firm. Other increases include $90,000 in sales, marketing, and promotion, $29,000 in administration costs, $24,000 in travel, meals, and entertainment and $25,000 across all of the following categories: computers and software, dues and subscriptions, insurance, rent, and repairs and maintenance.

 

                   

Change from

   

Percent Change

 

Other Income/Expense

 

2016

   

2015

   

Prior Year

   

from Prior Year

 

Three Months Ended June 30,

  $ (1,597 )   $ (850 )   $ (747 )     87.88 %

Six Months Ended June 30,

  $ (8,447 )   $ 5,231     $ (13,678 )     (261.48 %)

 

Other expenses increased for the three and six months ended June 30, 2016 when compared to the same periods in 2015 primarily due to unrealized losses associated with the revaluation of a promissory note from Canadian dollars to United States dollars in 2016.

 

Liquidity and Capital Resources

 

We measure our liquidity in a variety of ways, including the following:

  

   

June 30,

   

December 31,

 
   

2016

   

2015

 

Cash and cash equivalents

  $ 2,538,902     $ 492,733  

Working capital

  $ 2,292,814     $ 349,740  

 

As at June 30, 2016, our cash and cash equivalents and working capital had increased to $2,538,902 and $2,292,814, respectively, from $492,733 and $349,740 as at December 31, 2015. The closing of a private placement of our common stock in February 2016 for proceeds of $2,745,000 was the primary driver behind the increase in cash and working capital.

 

For the six months ended June 30, 2016 and the year ended December 31, 2015, we were able to finance our operations, including capital expenditures for infrastructure, product development and marketing activities with cash generated through operating activities, cash on hand, and the proceeds received from our private placement of common stock in February 2016.  The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As reflected in the financial statements included in this report, for the six months ended June 30, 2016 we had a net loss of $687,838 and a net loss of $994,351 for the year ended December 31, 2015.

 

We have had material operating losses and have not yet created positive cash flows. These factors raise substantial doubt as to our ability to continue as a going concern. Although we believe that sufficient funding will be available from operations, private placements of equity securities or additional borrowings to meet our liquidity needs over the next 12 months, our ability to continue as a going concern is entirely dependent upon our ability to achieve a level of profitability, and/or to raise additional capital through debt financing and/or through sales of common stock. We cannot provide any assurance that profits from operations, if any, will generate sufficient cash flow to meet our working capital needs and service our existing debt, nor that sufficient capital can be raised through debt or equity financing. The financial statements do not include adjustments related to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.

 

Anticipated Uses of Cash

 

In 2015 and the first half of 2016, our primary areas of investment were professional staff to support our services business, as well as staff to support SaaS product delivery and client relationship management. We also invested in product development and sales and marketing activities, including sales staff, marketing and sales automation software and other related services.

 

For the remainder of 2016, we currently anticipate increased uses of cash in connection with sales and marketing activities, including on- and offline marketing, marketing and sales automation software, and other related services. We also anticipate investments in product development, professional sales and development staff, staff to support SaaS product delivery and client relationship management, and staff to support our services business.

 

We intend to fund these planned expenditures with cash on-hand, cash flows generated from ongoing operations during this period and/or additional capital raised through debt financing or through sales of common stock or both. We do not intend to pay dividends in the foreseeable future.

 

 
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Cash Flow – Six Months Ended June 30, 2016 and 2015

 

Operating Activities. Net cash used in operating activities increased to $491,526 for the six months ended June 30, 2016 compared to $303,754 for the six months ended June 30, 2015. This increase in cash used by operating activities was attributable primarily to a $272,833 increase in net losses, partially offset by increases in cash flow due to the change in net working capital, primarily due to increases in account payable and deferred revenue balances in 2016.

 

Days Sales Outstanding (“DSO”), which the Company defines as the average number of days it takes to collect revenue once a sale has been made, increased in the first half of 2016 compared to the same period in the prior year.  During the six months ended June 30, 2016, DSO was approximately 63 days, up from approximately 49 days during the six months ended June 30, 2015. This increase mainly resulted from a high accounts receivable balance at the end of the second quarter of 2016 driven primarily by up-front billings in the current quarter related to deferred revenue on services not yet performed.

 

Investing Activities. Net cash used in investing activities for the six months ended June 30, 2016 increased to $207,305 compared to $41,685 in net cash used in investing activities for the same period in 2015. Net cash used in investing activities in the first half of 2016 primarily consisted of capitalized software development costs of $168,499 as well as payments for acquisition of intangible assets of $30,000 and equipment for $8,856.

 

Financing Activities. Net cash provided by financing activities for the six months ended June 30, 2016 and 2015 amounted to $2,745,000 and $513,750, respectively. Cash provided in both years was the result of separate private placement of our common stock in each period.

 

Off Balance Sheet Arrangements

 

We did not have any off balance sheet arrangements as of June 30, 2016.

   

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and as such, are not required to provide the associated information under this item.

  

ITEM 4.

CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedure

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were not effective.

 

We are in the process of developing and implementing remediation plans to address our material weaknesses as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Changes in Internal Controls

 

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

 
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PART II. OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS.

 

We are not involved in any legal actions or claims and to our knowledge no such actions or claims are pending.

  

 

ITEM 1A.

RISK FACTORS.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and as such, are not required to provide the associated information under this item.

  

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

Recent Sales of Unregistered Securities

 

There were no unregistered sales of our equity securities during the three month period ended on June 30, 2016.

Purchases of Equity Securities

 

During the three months ended June 30, 2016, there were no purchases of our common stock made by, or on behalf of, the Company or any "affiliated purchaser," as defined by Rule 10b-18 of the Exchange Act.

  

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

None.

  

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

  

 

ITEM 5.

OTHER INFORMATION.

 

(a)

Not applicable.

 

(b)

There have been no material changes to the procedures by which shareholders may nominate directors to our board of directors.

  

 

ITEM 6.

EXHIBITS.

 

See exhibits listed under the Exhibit Index below.

  

 
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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report has been signed on its behalf by the undersigned, thereunto duly authorized on this 12th day of August, 2016.

 

 

MCORPCX, INC.

 

 

 

 

 

BY:

/s/ MICHAEL HINSHAW

 

 

Michael Hinshaw

 

 

Chief Executive Officer, Principal Accounting Officer, and Treasurer

     
 

BY:

/s/ BARRY MACNEIL

 

 

Barry MacNeil

 

 

Chief Financial Officer

 

 
-19-

 

  

EXHBIIT INDEX

 

3.1

Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 25, 2012).

3.2

Amended Articles of Incorporation (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 25, 2012).

3.3

Amended Articles of Incorporation (Incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 25, 2012).

3.4

Amended Articles of Incorporation (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 13, 2015).

3.5

Amended and Restated Bylaws (Incorporated by reference to Exhibit 3. 2.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on November 24, 2015).

31.1

Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).

31.2

Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).

32.1*

Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

101.INS

XBRL Instance Document

 

101.SCH

XBRL Taxonomy Extension - Schema

 

101.CAL

XBRL Taxonomy Extension - Calculations

 

101.DEF

XBRL Taxonomy Extension - Definitions

 

101.LAB

XBRL Taxonomy Extension - Labels

 

101.PRE

XBRL Taxonomy Extension - Presentation

 

 

*Furnished, not filed

 

Notes to Exhibits List:

 


Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheet, (ii) Statements of Operations, (iii) Statements of Cash Flows, and (iv)Notes to the Financial Statements. In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

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